Wednesday, April 26, 2006
2:03 PM

Following is an update from Mike Morgan about the discrepancy between Florida Association of Realtors (FAR) numbers vs the National Association of Realtor (NAR) numbers:

Several of you have called to find out why yesterday’s Florida numbers are at the opposite end of the spectrum from the National Association of Realtor (NAR) numbers. Here’s what one analyst told me after he investigated a similar disconnect prior to this one.

NAR extrapolates. They survey 1-2% of the market and then multiply and add a “fudge” factor. He said he believes they intentionally avoid distressed markets like Miami, Naples, Vegas, Phoenix, DC, etc. There goal, as our Trade Association, is to promote the industry, not to report a comprehensive picture. If they avoid the hard hit markets, their numbers will consistently paint a much better picture than what reality is.

I have not been able to confirm this, but he is a top analyst with a top securities firm. He was able to speak directly with the right people at NAR.

What he says makes perfect sense when Florida shows a 22 and 23 percent drop in homes/condos, while NAR claim the numbers are actually up. From ground zero, I can tell you, without any question whatsoever, sales are down at least 25%. Folks . . . that’s being conservative. Moreover, listings to sales are in a runaway mode. I have stopped taking listings unless the client wants to pay a nonrefundable advance fee.

The other issue that is being ignored is what goes into Existing Home Sales. Many of these homes are flippers selling their homes that they just closed on as New Home Sales. It is not a normal number. As the flippers are being forced out of the market and walking away from contracts, we will eventually see the Existing Home Sales numbers fall substantially. However, NAR can simply avoid the markets they want to avoid, and simply use data from markets that will produce a “happy” number, as he notes.

The weekly numbers I report in regard to listings to sales are direct from our MLS system. These numbers track what FAR just reported. As my Grandpa once said, “Liars can figure, but figures can’t lie.”

Last Friday Mike wrote:

Engle is cranking it up a notch with a 25% boost to commissions to a lofty of 5%. A year ago the builders were paying 2% on average. Not only that, but they’re reducing prices $10,000 and giving away $15,000 in upgrades. It will be interesting to see where this all stops. Personally, I think we will see a lot of projects put on hold and a lot of condo projects failing.

When a Las Vegas lender plunked down money from retirees, investors and even a medical research firm's pension fund to finance construction of a West Palm Beach high-rise condo, everyone gambled that red-hot Florida real estate was a sure thing.

Low-income residents of the apartment complex moved, heavy construction equipment rolled in, millions of dollars were borrowed and dozens of investors saw double-digit returns on investments.Now, all bets are off.

Lender USA Commercial Mortgage Co. and its related companies — better known as USA Capital — filed for Chapter 11 bankruptcy protection in Nevada on April 14. The filing follows a Securities and Exchange Commission investigation of how the company and its affiliates financed construction projects.

"Up until last week, we had no inkling that anything was wrong," said Virgil Birgen of Nevada, who, with his wife, invested $150,000 to build Sail Club at Clear Lake.

About 200 people from across the country gave Nevada-based USA Capital or a sister company money to fund the four-tower, 590-unit luxury high-rise on Executive Center Drive.

"We have always gotten paid," said an investor in the local property who asked that her name not be used. But when she recently asked to withdraw her $100,000, there were weeks of delays. Then the company went into bankruptcy court.

"I didn't get anything back," she said.

Expect to see a lot more horror stories like that one. 50,000 condo units are coming online (or plan to) in the next couple years. That is close to a 10 year supply and many will not make it. A lot of would be flippers that bought these properties will not be happy with the results.

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